Lead Inventories in China May Be Double LME Stock

BEIJING, Aug. 12 -- Lead inventories in China, the world's largest consumer of the metal, may be double the size of stocks held at London Metal Exchange's warehouses after imports surged and demand from electric bicycle-makers failed to revive.

    As much as 200,000 metric tons to 300,000 tons could be stored by smelters and traders, He Yonggang, a sales manager at Xinling Refining Co, a Chinese lead refiner, said citing traders. LME inventories were 114,175 tons on Aug. 11.

    Sales to electric-bicycle makers, the major consumers of lead in China, have dropped significantly and raised concerns among traders and smelters, He said. The lack of a demand revival in China, which imported 23 times more lead this year, may stall an 80 percent advance in prices.

    "Most traders and smelters are concerned about the declining lead products sales," He said in an interview from Shanghai. "A majority of lead-acid battery is used in electric bikes, and since the financial crisis the e-bike industry has been in poor condition."

    Henan Yuguang Gold & Lead Co., the world's largest lead smelter, dropped 4.7 percent to 17.09 yuan in Shanghai trading, more than the 2 percent decline in the benchmark Shanghai Composite Index. Fengfan Co., which makes batteries, fell 4 percent to 13.31 yuan in Shanghai at 10:28 a.m. local time.

    Shanghai Inventories

    Lead for three-month delivery dropped 4 percent yesterday to $1,800 a ton in London, trimming the year's advance to 80 percent. The metal, which isn't traded on exchanges in China, dropped 61 percent in 2008. The Chinese inventory is about the equivalent of about a month of output.

    "Most of the lead inventories in China are concentrated in Henan and Shanghai," Zhang Changhai, analyst at Beijing Antaike Information Development Co., said by phone today. In Shanghai alone, there is as much as 50,000 tons of the metal stored by traders, he said.

    China imported 127,607 tons of lead in the first six months compared with 5,524 tons for the same period last year, according to customs data.

    "Smelters didn't benefit much from the rising lead prices because of high raw material costs and very weak consumption," said Antaike's Zhang.

    Electric bikes account for 20 percent of lead demand in China and automobile producers another 20 percent, with the rest consumed by other manufacturers including for communications equipment, Antaike said.

    Concentrate Shortage

    Xinling, which has 100,000 tons of annual smelting capacity, is running at about 70 percent of utilization now, according to He. Sales and profit has declined "significantly" from the same period last year, he said. The company, which also produces zinc, is based in Lingbao city, Henan province.

    "Due to a shortage of lead concentrates and weak demand, smelters in China can't run at full capacity," He said. Lead consumption could also be lower now because consumers tend to replace batteries in bicycles in winter, he said.

    "Current zinc and lead prices are still not attractive enough for zinc and lead miners to reopen their mines as they can't make a good profit," said He.

    (Source: Bloomberg)